ESRI SPECIAL ARTICLE ASSESSING THE IMPACTS OF COVID-19 ON THE IRISH PROPERTY MARKET: AN OVERVIEW OF THE ISSUES M. ALLEN-COGHLAN, K. MCQUINN AND C ...
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ESRI SPECIAL ARTICLE
Assessing the impacts of COVID-19 on the Irish
property market: An overview of the issues
M. Allen-Coghlan, K. McQuinn and C. O’Toole
https://doi.org/10.26504/qec2020aut_SA_Allen-Coghlan
This Open Access work is licensed under a Creative Commons Attribution 4.0 International License
(https://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and
reproduction in any medium, provided the original work is properly credited.
This Article has been accepted for publication by the Institute, which does not itself take institutional
policy positions. Special Articles are subject to refereeing prior to publication. The authors are solely
responsible for the content and the views expressed.ASSESSING THE IMPACTS OF COVID-19 ON THE IRISH PROPERTY
MARKET: AN OVERVIEW OF THE ISSUES
Matthew Allen-Coghlan, Kieran McQuinn and Conor O’Toole 1
ABSTRACT
In this paper we examine some of the potential channels through which COVID-19
is likely to impact the Irish housing market and discuss some policy areas which
may need refocusing or re-evaluation. Building on existing work by ESRI
researchers, we examine the implications under the headings of housing demand,
housing supply, affordability of prices and the rental market. While there is likely
to be a significant number of effects across a wide variety of headings, the most
long-lasting impact of the crisis is the potential exacerbation of the imbalance
between housing demand and supply which already exists in the market. The most
efficient policy response in that context is for an increase in the State provision of
social and affordable housing over the short to medium term.
1. INTRODUCTION
Along with the general economy, the impact of COVID-19 on different aspects of
the Irish housing market is likely to be profound. As noted in a variety of
publications by researchers working in the ESRI and elsewhere (see McQuinn,
2017, for example), the Irish residential market has experienced unprecedented
volatility over the past 25 years. It is evident that COVID-19 will exacerbate this
volatility across a variety of headings in the housing sector.
In this paper we will outline some of the major issues which are likely to impact the
Irish housing sector due to COVID-19. The impact of the pandemic on different
aspects of housing demand and supply is discussed as is the impact on affordability
in both the rental and home ownership markets. We will also outline pressure
points through which the COVID-19 shock may impact the credit market.
To date, in light of the emergence of the pandemic, researchers in the ESRI have
already produced three reports dealing directly with the impact of COVID-19 on
the housing and rental markets. Allen-Coghlan and McQuinn (2020) look at how
the shock caused by the virus on mortgage activity, incomes and supply is likely to
1 The authors are economists at the Economic and Social Research Institute (ESRI). They can be contacted at:
kieran.mcquinn@esri.ie. The authors are solely responsible for the views expressed in the paper.
3affect house prices over the next two years. Forecasts range from no change in
prices to house prices declining by 12 per cent by the end of 2021. Allen-Coghlan
et al. (2020) consider the short-term impacts of the pandemic on rental price
developments as part of the ESRI/RTB Rent Index series and show a clear trend
towards falling rental inflation.
A separate report by Coffey et al. (2020a) looks at the impact of the pandemic on
affordability issues in the private rental market. They found that contrary to the
pandemic increasing affordability issues in the sector, affordability may have
actually improved over the last few months as a result of the government income
support schemes and falling consumer costs.
These reports have primarily explored the shock of COVID-19 on the housing and
rental sector from a short-term perspective, analysing how prices and affordability
have been impacted by the initial lockdown instigated in the country in March.
However, due to the uncertainty caused by the lockdown and the impact this will
have on demand and supply, COVID-19 is likely to have significant long-term
impacts on both house prices and rents, affecting the market for years to come.
The rest of the paper is laid out as follows. In Section 2 the impact of COVID-19 on
housing demand is explored, in Section 3 we look at the impact of the pandemic
on housing supply, Section 4 deals with issues around price and affordability in the
housing market, Section 5 looks at the rental market, Section 6 concludes.
2. HOUSING DEMAND
The impact COVID-19 has had on the Irish labour market is unprecedented. In April
2020, the unemployment rate spiked at 28.2 per cent, up from 4.8 per cent just
two months earlier in February (Figure 1). This change in unemployment is unique
both in terms of the rapidity and scale of the increase. While the labour market has
recovered somewhat in the past couple of months as lockdown measures have
been eased, the unemployment rate remains elevated at just under 17 per cent.
4FIGURE 1 UNEMPLOYMENT RATE (%)
35
30
25
20
15
10
5
0
Source: Central Statistics Office.
Typically, such a large increase in unemployment would lead to a significant
decrease in income which in turn would reduce the demand for housing. Kelly and
McQuinn (2014), for example, observe a very close relationship between house
prices and developments in the Irish labour market. However, as shown in Beirne
et al. (2020) the immediate impact on incomes during this crisis has been largely
offset by the introduction of extraordinary fiscal measures in the form of the
Pandemic Unemployment Payment (PUP) and the Temporary COVID-19 Wage
Subsidy Scheme (TWSS). As a result, the direct impact of the labour market shock
on housing demand may be muted in the short term.
However, these support measures are set to be unwound over the next year. From
September the welfare amount received will be dependent on an individual’s pre-
pandemic income and the supports are scheduled to be phased out altogether by
April 2021. If unemployment rates remain elevated as income supports are
curtailed, overall income in the country would likely decline which in turn would
reduce the demand for housing. A critical question will relate to which households
across the income distribution will face income shocks and how their demand for
housing will change. Recent research by Beirne et al. (2020) and Coffey et al.
(2020b) show considerable differences across the income distribution.
Beyond the direct impact of the pandemic on the Irish economy, the increased
uncertainty around COVID-19 is likely to have a contractionary impact on demand.
The longer the virus persists and uncertainty about the future opening of the
economy continues, the greater the adverse impact on housing demand.
5Consumers will be less willing to engage in significant purchases such as buying a
house when there is such a high degree of uncertainty. Other practical
considerations such as potential buyers being restricted from viewings of real
estate are also likely to have impacted demand in the short term.
Key Issues for Consideration
- How will the labour market shocks translate into housing demand
developments during, and in the aftermath of, the pandemic?
- To what extent will uncertainty affect housing demand?
Moving beyond the short term it is possible that the Irish housing market may
experience a significant increase in demand when the pandemic is brought under
control. Coffey et al. (2020b) show that as a result of the heightened uncertainty
and the administrative closures which limited the ability of consumers to spend,
consumption this year is likely to be significantly lower than previous years.
Combined with the PUP and TWSS which have offset a significant decrease in
income there is likely to be a large increase in savings this year. FitzGerald (2020)
estimates that the savings rate in 2020 will be 19.7 per cent in comparison to
10.5 per cent in 2019. When the uncertainty around the pandemic begins to
subside this large increase in savings may in part be directed towards the housing
market. This opens up the possibility of a surge in housing demand when concerns
about the pandemic subside in the future. In many respects this is what occurred
after the financial crisis of 2007/2008. Between 2008 and 2012, house prices fell
significantly in the Irish market. However, by 2012, once economic conditions had
stabilised and uncertainty had abated, demand recovered strongly.
Housing demand will also be impacted through the credit channel, with COVID-19
likely to impact on credit institutions in a number of different ways. As a result of
the supports that have been put in place for mortgage holders and SMEs, loan
repayments have been deferred. There is also likely to be increased uncertainty
around the issuance of credit in an environment of increased unemployment and
falling incomes. These issues are likely to have an impact on bank profitability and
capital levels. As such this may give rise to the possibility of credit constraints, with
households limited in the amount of credit that they can obtain relative to before
the crisis. This in turn will reduce the demand for housing. Fitzpatrick and McQuinn
(2007) estimated a significant mutually reinforcing link between house prices and
mortgage credit in the Irish market. Figure 2 shows that already there has been a
sharp decline in the value of new residential mortgage loans with the annual
growth rate declining by 35 per cent in Q2 2020. While early indications are that
mortgage approvals have increased from April, banks may tighten underwriting
6standards given the difficulties in assessing risk in the current climate. This may
further increase credit access difficulties.
Where credit access difficulties become a binding concern for households
(i.e. creditworthy households are unable to access sufficient credit), this may lead
to a requirement for further policy interventions to deal with this market failure.
The current Rebuilding Ireland Home Loan for first time buyers, which targets
credit access issues for lower income households, may need to be revisited to
ensure that it is dealing with the post-pandemic difficulties which certain
households may have in accessing credit. This could be achieved through
alleviating income constraints. It could be the case that the pandemic leads to
more households facing wealth constraints in terms of saving for house purchase.
If this occurs, then it may be necessary to provide a revamped equity scheme for
first time buyers. While the Help-to-Buy Scheme is still in place, there is evidence
that this scheme has been poorly targeted (to those with already low LTVs who are
not constrained) (Parliamentary Budget Office, 2019), 2 and many commentators
have noted the scheme is likely leading to higher levels of inflation in the market
given present levels of housing supply. However, if the evidence is clear that
households are facing wealth constraints then some intervention to facilitate
equity support is warranted. One offsetting effect may be the rise in savings which
could provide many households with ample equity for house purchase. At the very
least, a reassessment of credit access following the pandemic and the role of public
mortgage and equity supports for first time buyers is required given the highly
changeable context.
Key Issues for Consideration
- How will the lending market evolve in the context of the pandemic?
- Do households face increased income or wealth constraints as a
consequence of the pandemic and what is the appropriate policy mix
required to deal with these issues?
2 https://data.oireachtas.ie/ie/oireachtas/parliamentaryBudgetOffice/2019/2019-09-25_an-overview-of-the-help-to-
buy-scheme-which-is-set-to-expire-at-the-end-of-2019_en.pdf
7FIGURE 2 GROWTH RATE VALUE OF RESIDENTIAL MORTGAGE LOANS (%)
50.0
40.0
30.0
20.0
10.0
0.0
-10.0
-20.0
-30.0
-40.0
Source: Banking and Payments Federation Ireland.
Prior to the pandemic Bergin and Garcia-Rodriguez (2020) used a regional
demographic model to determine the level of structural demand for housing at a
local authority level up to 2040. Under their Baseline scenario urban areas are
expected to continue to have the highest population share up to 2040 with the
Mid-East region around Dublin expected to experience the fastest population
growth relative to population shares. As a result, higher levels of housing demand
are forecast in Dublin city, Cork county, south Dublin (SDCC), Dún Laoghaire-
Rathdown, Cork city, Meath and Kildare.
One of the most significant impacts that the pandemic and lockdown have had on
the labour market is the increase in the number of people working from home.
While the permanency of this shift to remote working remains to be seen, many
companies have already signalled that employees will be given greater
opportunities to work from home going forward. This may reduce the need for
workers to be located near city centres both as a direct result of remote working
and also the knock-on effect of reduced economic activity in city centres. In turn,
this may result in decreased demand for housing in urban areas where house prices
and rents are currently highest. The existing, desired move towards higher density
models of accommodation is likely to be more challenging as a result of COVID-19.
Households, particularly those with children, may place more emphasis on green
space and houses rather than apartments. If the pandemic leads to a systemic
re-evaluation of households housing preferences, then this may alter the
composition of demand. Future research could examine how such changes are
occurring and whether a review of related policies around planning is required.
8Key Issues for Consideration
- How will the pandemic affect the structural demand for housing, in
particular around migration?
- Will the pandemic change housing type preferences and location choice
due to more working from home possibilities?
- Will such changes provide an opportunity for development in regional
and rural locations?
Figure 3 shows the ratio of transactions in 2020 compared to the same period the
previous year. There was a clear decline in transactions in April and May relative
to 2019. While the transaction rate is influenced by demand- and supply-side
factors, some of the reduction in sales may be coming through reduced housing
demand as incomes decline and households are more uncertain about the future.
FIGURE 3 RATIO OF SALES TRANSACTIONS IN 2020 VS 2019
1.2
1
0.8
0.6
0.4
0.2
0
2020M01 2020M02 2020M03 2020M04 2020M05
Source: Central Statistics Office, Property Price Register.
3. HOUSING SUPPLY
Before the pandemic emerged, the Irish housing market was already faced with a
significant problem of undersupply. Despite increases over the last number of
years there were still only 21,000 housing completions in 2019. This is well short of
the amount of housing needed to keep up with the level of structural demand,
estimated to be in the region of 30,000-35,000. 3 Issues of undersupply are likely to
3 See for example: Conefrey and Staunton (2019) and earlier work in Duffy et al. (2016).
9be amplified by the pandemic which will hinder both investment and construction
of new housing.
The immediate consequence of the lockdown was to put physical restrictions on
the construction industry. Construction sites were closed for a number of weeks as
part of the administrative closures instigated in late March. Despite the easing of
these restrictions efficiency on sites is likely to be below the level it was at before
the pandemic. This is due to the safety protocols which have been put in place such
as the limitations on the number of workers on site at any one time. Further to this
a number of building sites have already had to be temporarily closed as a result of
workers testing positive for the virus. As long as these measures remain in place,
efficiency in the construction sector is likely to remain below normal. A key
question arises as to how productivity in the construction sector will be affected
under an economic environment with ongoing lockdowns and infection risks.
These issues will naturally raise the cost of development if such measures, for
example, lead to fewer employees allowed on site. However, COVID-19 could
increase the popularity of alternative construction practices such as off-site
volumetric builds particularly in the context of large scale builds.
Due to the nature of housing investment it may take a number of years before
there is a return on the initial investment. Therefore, any uncertainty with regard
to future market conditions is likely to reduce investment in housing today. A
reduction in investment today will lead to a fall in new housing in the future. Thus,
while a fall in uncertainty around the pandemic would likely result in an immediate
increase in demand there is likely to be more of a lag for housing supply. As a result,
the present imbalance in the market between demand and supply could be
exacerbated over the coming years as supply lags behind a recovery in housing
demand. This mismatch in terms of the recovery of supply vis-à-vis demand was
observed post-2012 in the Irish market. However, for a comparable outcome to
the financial crisis to materialise, the adverse effects of the pandemic would want
to continue for a number of years.
Key Issues for Consideration
- How will ongoing public health restrictions affect productivity in the
building industry?
- How will uncertainty around the economic and epidemiological situation
affect the supply of new housing?
The aforementioned credit restrictions brought about by COVID-19 are also likely
to impact the supply side of the housing market as builders and developers may
10find it more difficult to receive credit to finance residential construction. Again, this
will have the most significant impact on supply over the next couple of years,
potentially at the same time that demand is starting to pick up. Policy intervention
by national and supranational authorities will play a crucial role here. The ECB has
introduced a number of measures and programmes such as targeted longer-term
refinancing operations (TLTRO III) to support bank lending to enterprises which
may help credit continue to flow. However, the effectiveness of these programmes
may be undermined if financial institutions’ attitudes to risk changes, and credit is
restricted due to difficulties institutions experience in assessing repayment risk. In
these circumstances, State lending providers (such as Home Building Finance
Ireland) may need to play a greater role in lending activities on the ground. There
is no clear evidence to date whether credit access difficulties for construction firms
and suppliers have changed.
Housing completion data in Figure 4 reveal the short-term impact that the
lockdown has had on the supply of housing. In Q2 2020 the number of housing
completions fell by 32 per cent in comparison to the same period the previous year,
down to 3,290. Allen-Coghlan and McQuinn (2020) forecast that house price
completions in 2020 could fall to between 15,000 and 16,000 this year down from
a pre-pandemic expectation in the Quarterly Economic Commentary of 24,500
completions.
FIGURE 4 HOUSING COMPLETIONS
7,000 60
50
6,000
40
5,000 30
4,000 20
10
3,000 0
2,000 -10
-20
1,000
-30
0 -40
Number of Completions Annual Growth (%, RHS)
Source: Central Statistics Office.
11Another aspect of housing supply that may need an alternative set of scenario
analysis following the pandemic is the issue of planning and demographic spread.
While the current National Planning Framework and associated local county
development plans are based off demographic projections built around strong
economic growth, these results may now need to be accompanied by an
alternative set of assumptions. It will not be possible to ascertain what the
demographic impacts of the pandemic will be until the epidemiological situation is
clearer but there may well be a range of additional questions that now need to be
addressed from a planning and demographic perspective.
Key Issues for Consideration
How does planning policy react to changes brought on by the pandemic?
- Is city-led development going to be as required going forward with a more
agile “working from home” culture and can this be an opportunity for a
rejuvenation of rural areas and provincial towns?
- Is there the potential for surplus office accommodation in cities to be
converted to residential accommodation?
- Will lower density housing with fewer apartments be more preferential
for households given concerns around outdoor space and green spaces?
While city-led urban development is highly efficient from a public service provision
perspective and spatial planning perspective, demand amongst households for this
type of living may decline. This may need a reappraisal of the emphasis traditionally
placed on such development and may offer an opportunity for a more balanced
spread of population on a regional basis.
Investment and rental supply
Another concern from the supply side in the rental market is the extent to which
tenant protection mechanisms and price cap limitations feed through over time
into supply impacts. The immediate crisis related measures in the rental sector
which were enacted as part of the Emergency Measures in the Public Interest
(COVID-19) Act 2020 removed eviction and price rise risk from the private rental
sector for the period of the pandemic. This measure was entirely consistent (and
warranted) with households being asked to restrict their movements to deal with
the pandemic. While protections for households in arrears who had been affected
by COVID-19 were continued to early 2021 as part of the Residential Tenancies and
Valuation Act 2020, the extent to which these policies (and the longer-term rent
control measures) add uncertainty and price risk for investors is an open question.
The impact of the risk-return calculations of both household and institutional
12investors may lead to lower rental supply from private sources going forward. If
these impacts delay project starts now, this could exacerbate supply bottlenecks
in the future.
A consequence of this may be that the pandemic results in a major increase in State
provision of longer-term rental housing which can be targeted at providing
affordable solutions for lower income households. However, the impact of the
pandemic on investment in rental supply requires a detailed exploration. In
particular, it may be necessary to estimate if the current legislation, which limits
evictions, has a significant impact on future investment levels in the sector? In both
cases, an increase in the State provision of rental housing is likely to be required
and could form a cornerstone of any post-pandemic capital stimulus.
Key Issues for Consideration
- How do changes in pandemic-related tenancy legislation impact rental
supply?
- To what extent should the State step in to provide rental housing supply
directly?
4. PRICE/AFFORDABILITY IN THE HOUSING MARKET
While house prices increased rapidly in the years following the nadir of the market
in 2013, the inflation rate had fallen somewhat from 2019 onwards (see Figure 5).
The stabilisation of house prices over this period reflected the fact that actual
house prices had converged with their fundamental values as a result of the rapid
increase in prices in preceding years. 4
Since April 2020 the inflation rate has started to decline again, and in July 2020
national house prices experienced the first negative year-on-year growth rate since
May 2013.
4 For further information on house price sustainability in Ireland see: McQuinn et al. (2019) House price expectations,
labour market developments and the house price to rent ratio: A user cost of capital approach and Allen-Coghlan M. et
al. (2019) Irish house price sustainability: a county-level analysis, for detail on house price sustainability.
13FIGURE 5 YEAR-ON-YEAR GROWTH RATE OF RESIDENTIAL PROPERTY PRICE INDEX:
2013:01 – 2020:07
25
20
15
10
5
0
-5
-10
Source: Central Statistics Office.
Despite the moderation of house price inflation, affordability issues in the housing
market remain. Research by Corrigan et al. (2019) show that affordability pressures
in the housing market are not universal but rather pertain to specific groups.
Unsurprisingly those on low incomes face the greatest challenges in this regard
with mortgaged households in the lowest 25 per cent of the income distribution
paying on average two-fifths of their income on housing costs. A more granular
look at affordability for first time buyers by Allen Coghlan et al. (2019) found that
affordability issues are most pronounced in Dublin and the surrounding counties.
Given the aforementioned impact that COVID-19 will have on housing demand and
supply it is very likely that the pandemic will have a knock-on effect for house prices
and affordability.
Allen-Coghlan and McQuinn (2020) look at the implications for house prices due to
the potential impact of the pandemic on incomes, credit and new housing supply.
An inverted demand model for housing with a mortgage credit activity variable is
utilised to analyse the historical relationship between prices and these three
variables. The coefficients estimated from this model are then used in a scenario
analysis where incomes, credit and supply are modelled over the next two years.
Three scenarios are put forward representing different recovery paths for the Irish
economy; the Baseline, Benign and Severe. The Baseline is a counterfactual
14scenario where there was no pandemic. Under this scenario house prices were
estimated to increase by just over 1 per cent this year and just over 3 per cent in
2021. Under the Benign scenario there is a significant contraction in the economy
in Q2 2020 due to the lockdown restrictions imposed by the government. However,
after this period, as the restrictions are gradually lifted, the economy recovers
rapidly and by 2021 the economy has recovered to the level expected under the
Baseline scenario. Here house prices in Q4 2021 are forecast to be the same level
they were in Q1 2020, the period just before the pandemic. In the Severe scenario
where the impacts of the pandemic stretch beyond 2020, house prices decline by
over 12 per cent by the end of 2021 relative to Q1 2020.
While the short-term impact on prices will likely be dominated by demand-side
factors of falling incomes and reduced credit access, longer-term prices are likely
to be more influenced by supply-side factors which, as discussed, tend to have a
lagged effect. This means that we could possibly experience a sharp increase in
house price inflation when demand initially begins to pick up again.
Key Issues for Consideration
- How will house prices react to demand and supply side factors following
the pandemic?
FIGURE 6 FORECASTS OF HOUSE PRICES (REAL) UNDER THREE SCENARIOS: 2019Q1-2021Q4
105.0
103.0
101.0
99.0
97.0
95.0
93.0
91.0
89.0
87.0
85.0
2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4
Baseline Benign Severe
Source: Authors’ calculations.
Note: All data are in index form with 2019Q1 set = 100.
15While a short-term decline in house prices may be a relief to those currently
seeking to buy a home, the pandemic will not be a panacea for affordability issues
in the housing market. The negative impact of COVID-19 on the Irish labour market
has not been evenly distributed across sectors or demographics. In a Box in the
summer Commentary Roantree (2020) has shown that young workers have been
disproportionately impacted by COVID-19. It is also clear from the labour market
data that employees in lower paid sectors such as hospitality and tourism have
been much more adversely impacted than those in higher paid sectors such as
finance and ICT. As the work by Corrigan et al. (2019) showed, those in lower
income groups were disproportionally impacted by affordability issues in the
housing market before the pandemic. Allen-Coghlan et al. (2019) showed that
there were significant affordability issues for first time buyers in the housing
market, particularly in the GDA and urban areas generally. While government
supports have prevented a significant drop in incomes for these groups so far, if
the negative labour market shock persists then the very groups that were facing
the most significant affordability issues before the pandemic may be even more
negatively impacted in the years to come.
5. RENTAL MARKET
While there was some moderation in house price growth over the past year, rental
prices have continued to increase rapidly. Figure 7 presents the RTB Quarterly Rent
Index up to Q1 2020, before the lockdown took effect. The annualised growth rate
of rents increased by 5.4 per cent in Q1 2020 nationally while the annual growth
rate in Dublin increased by 5.3 per cent.
FIGURE 7 RTB/ESRI RENT INDEX ANNUAL GROWTH (%)
15
10
5
0
-5
-10
-15
-20
Q3 2008
Q1 2009
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
Q3 2013
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Q1 2017
Q3 2017
Q1 2018
Q3 2018
Q1 2019
Q3 2019
Q1 2020
National Dublin Non-Dublin
Source: ESRI/RTB Rent Index.
16In order to explore the early impact of the pandemic on the rental market, the ESRI
and RTB undertook a short-term analysis of monthly rent prices and transactions
from January to June 2020 using a hedonic regression model (Allen-Coglan et al.,
2020). The results of this are presented in Figure 8. Rent price growth has
moderated somewhat since the pandemic began, declining by 2.7 per cent
between March and April. The initial price decline was even more significant in
Dublin where prices fell by 4.5 per cent between March and April. National month-
on-month declines were registered in three of the four months since March 2020.
However, it should be noted that these price trends were based on early
provisional data received by the RTB. These data do not include the total number
of rental transactions that took place over this period as registrations with the RTB
are often made in the months following the commencement of a tenancy. In order
to assess the full impact of the pandemic on the rental market, we will need to wait
until the regular quarterly RTB Rent Index for Q2 is released. Further downward
pressure on rent prices may come as a result of the Residential Tenancies and
Valuation Act 2020 which provides a limitation on price increases for tenants
affected by COVID-19 until early 2021.
FIGURE 8 SHORT-TERM INDEX OF RENT PRICES
104
103
102
101
100
99
98
97
96
95
94
2020M01 2020M02 2020M03 2020M04 2020M05 2020M06*
National Dublin Non-Dublin
Source: ESRI/RTB Rent Index.
Note: * Data only available for tenancies commencing over the first 16 days of the month.
Figure 9 shows the number of tenancy registrations each month. Between March
and April there was a significant decline in the number of tenancies registered with
the RTB. While in March there were over 7,000 registrations, in April this had fallen
17to less than 4,000. The number of new registrations also remained subdued in May.
The fall in registrations is consistent with the restrictions on economic and social
life brought in to stop the spread of the COVID-19 virus.
FIGURE 9 NEW AND RENEWAL TENANCIES REGISTERED WITH THE RTB
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2020M01 2020M02 2020M03 2020M04 2020M05 2020M06*
National Dublin GDA (excl. Dublin) RoC
Source: ESRI/RTB Rent Index.
Note: * June only contains data up to the 18th of the month.
Coffey et al. (2020b) looked at how COVID-19 would impact on affordability in the
rental sector in the short term. The paper focused on households which were not
in receipt of rental supports such as the Housing Assistance Payment (HAP) or Rent
Supplement. The paper used two metrics to determine affordability (1) the ratio of
rental payment to net income of the household and (2) a residual income ratio
which takes the income left after the rental payment is made and determines
whether it is sufficient to cover a minimum required level of expenditure. They find
that while prior to the lockdown one-third of renters already experienced
affordability issues, on an aggregate basis the immediate impact of the pandemic
would not have made these affordability challenges any worse. This is primarily
due to the extraordinary income supports which were put in place in the form of
the PUP and the TWSS. As a result of these supports, they actually find a fall in
affordability pressures among households. However, they also find that renting
households were more likely to work in sectors affected by the pandemic and the
income shock experienced by renters was greater than that for homeowners.
This paper also looked at how the pandemic affected missed rental payments.
While model estimates based on the relationship between affordability stress,
unemployment and rental payment difficulties suggest that there is likely to be an
18increase in missed payments, this will be reduced somewhat by consumption
expenditure falling more rapidly than incomes. Model estimates suggest that
missed payments will increase slightly from just under 10 per cent to just under
11 per cent.
Over a longer time period the pandemic is likely to worsen affordability issues in
the rental market. Incomes are likely to rebound slower than rising costs in areas
such as transport and childcare costs. COVID-19 is having the most significant
impact on those in the accommodation and food service sectors, where 15 per cent
of workers in these sectors live in private rental households compared to more
than three times as many as in mortgaged households. As the income supports are
removed any sluggishness in the recovery of incomes in these sectors will
exacerbate pre-existing affordability challenges in the rental sector.
Work by Cronin and McQuinn (2016) has shown that restrictions in credit also have
implications for tenure choice, leading to an increase in demand for rented
accommodation. If there is a decline in the provision of credit going forward due
to the pandemic then, ceterus paribus, we would expect to see greater demand
for rental properties relative to owner-occupying which again could put upward
pressure on rental prices.
These considerations reinforce the discussion above regarding the supply of rental
properties given changes to the legislative agenda and the ongoing affordability
challenges. If fewer households are able to afford the transition from renting to
owning this will exacerbate the affordability issues in the rental sector.
6. OTHER CONSIDERATIONS
Given how fast moving and changeable the situation with regard to COVID-19 is
regarding the broader economy, it is likely there are many aspects of the housing
market that we have not explored that will be impacted by COVID-19. One such
issue that may require additional analysis to understand its role in a post-COVID
environment is the generalised goal of improving energy efficiency in the housing
stock. The retrofitting of private housing may be more difficult to achieve if
households become credit constrained or face a reduction in living standards due
to the deterioration in labour market conditions. Incentivising investment through
the private sector may need additional policy intervention if private households
are unable or unwilling to finance such investment going forward.
197. CONCLUSIONS
COVID-19 has already had an unprecedented impact on the Irish economy and this
has extended to the housing and rental markets. While government support
schemes are likely to keep incomes stable in the near term, as these measures are
unwound and the labour market struggles to recover, incomes are likely to fall,
putting downward pressure on housing demand. The extensive and prompt
introduction of the different household income supports has to date insulated the
housing market from some of the most adverse consequences of COVID-19.
The fall in economic activity is also likely to lead to credit constraints which will also
reduce the level of demand. These credit constraints may be compounded by any
increases in the provisioning for impaired loans the domestic financial sector has
to undertake due to the crisis.
While there has already been a fall in the number of housing completions due to
reduced efficiency in the construction sector, the most significant impact on supply
may not be seen for another year. In the face of a high level of uncertainty today
investment is likely to be curtailed, meaning as demand starts to pick up the level
of supply will not be there to meet it, amplifying the existing undersupply in the
Irish market.
Ultimately, over the longer-term, this is likely to be the main impact on the housing
market of COVID-19; an increase in the imbalance between the supply and demand
for properties in the Irish market. Consequently, one of the most appropriate policy
responses is for an increase in State provision of social and affordable housing. An
increase in the supply of such housing at this point would help to reduce the extent
to which the imbalance would be exacerbated by the present crisis. Ultimately,
facilitating cheaper, more efficient housing supply is the primary policy concern in
the housing market over the medium term.
At a more speculative level, the potential increase in the number of people who
can and will work from home in the future may have significant implications for the
housing market and the general economy over the longer term. In practical terms,
this may mean that much of the longer-term analysis, which has already been
conducted concerning the structural demand for housing at both a national and
regional level, now needs to be accompanied by an alternative set of scenarios.
More broadly, the impact of COVID-19 may lead to an additional set of questions
examining the possibility of better regional and rural distribution along with a new
consideration of the future purpose of towns and cities.
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